U.S. stocks fell, with the Dow Jones Industrial Average posting its first three-day losing streak this year, as investors weighed prospects for economic growth and the pace of Federal Reserve stimulus measures.
The Standard & Poor’s 500 Index fell 0.8% to 1,612.54 at 4 p.m. in New York, erasing a 0.7% rally earlier. The benchmark gauge posted its biggest three-day decline since April. The Dow declined 127.33 points, or 0.8%, to 14,994.69, the first time the index has retreated at least three straight days since Dec. 28.
“Markets are having a difficult time holding onto gains of any kind,” Peter Kenny, chief market strategist at Knight Capital Group Inc. in Jersey City, New Jersey, said in an interview. “Buying is suddenly becoming less automatic given the backdrop of the Fed narrative. It appears as though whenever the market pops its head up and trades in the green, institutions lighten up, hedge risk and provide supply. It appears as though the easy lifting is behind us.”
Stimulus from the Federal Reserve and better-than-forecast earnings have propelled the bull market in U.S. stocks into a fifth year and driven the S&P 500 up 138% from a 12-year low in 2009. The gauge has fallen 3.4% from its record high on May 21, the day before Fed Chairman Ben S. Bernanke suggested the central bank could curtail its bond purchases, known as quantitative easing, if the economy improved in a “real and sustainable way.”
Investors get their next look at the health of the U.S. economy tomorrow, when reports may show initial jobless claims were unchanged last week and sales at retailers rose in May. The S&P 500 rallied June 7 after jobs growth in May beat forecasts. At the same time, bigger job and wage gains are needed to move the central bank closer to scaling back stimulus. Fed policy makers next meet June 18-19.
Concerns over economic growth and the pace of central-bank bond buying have led to widening swings in U.S. shares. That has prompted options traders to make unprecedented bets on equity volatility, pushing bullish and bearish contracts to records. Options outstanding on the iPath S&P 500 VIX Short-Term Futures ETN, tracking a gauge of VIX futures, climbed to an all-time high of 3.46 million on June 6, based on data compiled by Bloomberg.
“Markets are wrestling with high volatility and changes, which in my opinion, are disconcerting to a lot of investors,” David Kotok, Sarasota, Florida-based chief investment officer at Cumberland Advisors Inc., said in a phone interview. His firm oversees $2.2 billion. “We went from QE, relied upon and predictable, to mixed messages in most of the capital markets of the world,” he said. There will be “more volatility, lots of more, both directions in nearly all markets. Great opportunity if you’re on the right side of it.”